Hanes(US:HBI)2022-11-09 17:58Financial Data and Key Metrics Changes - Net sales decreased by approximately 7% to $1.67 billion, reflecting a 330 basis point headwind from foreign exchange rates [28] - Adjusted gross margin declined 460 basis points over the prior year to 34.5%, primarily due to inflation in commodity costs and ocean freight [32] - Adjusted operating margin was 10% for the quarter, near the high end of the forecast despite lower-than-expected sales [33] Business Line Data and Key Metrics Changes - U.S. Innerwear sales declined 11% compared to last year, but were 11% above pre-pandemic levels [29] - U.S. Activewear sales were comparable to the prior year, with a 3% increase relative to pre-pandemic levels [30] - International segment sales increased approximately 5% over last year in constant currency, driven by growth in Champion in Europe and Innerwear in Australia [31] Market Data and Key Metrics Changes - Retail inventory for Innerwear is below last year's level, but overall inventory management by retailers is negatively impacting near-term replenishment orders [11] - The consumer and retail landscape has shifted from high demand to excess supply, leading to order cancellations, particularly for Champion [10][11] Company Strategy and Development Direction - The company is focused on its Full Potential strategy, aiming to transform into a business that consistently generates higher growth and returns [16] - Efforts include reducing SKU counts by over 40% and improving supply chain efficiency to align inventory with demand [13][20] - The company is investing in digital analytics tools to assist retail partners in managing inventory and identifying replenishment opportunities [14] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the challenging operating environment and expects sales headwinds to continue into the fourth quarter [38] - Despite current challenges, management remains confident in the long-term fundamentals of the business and the Full Potential strategy [26][42] - The company anticipates a return to more normal cash flow levels in 2023 as inventory levels are reduced and macroeconomic conditions stabilize [41] Other Important Information - The company amended its credit agreement to provide additional financial flexibility amid current market conditions [15][35] - Inventory units are expected to be down year-over-year by the end of the year, despite overall inventory dollars being up [34][76] Q&A Session Summary Question: How is sell-in versus sell-through and the state of retail inventory? - Management noted that retail inventory for Innerwear is down from last year, but replenishment orders are affected by retailers managing their overall inventory [47] Question: Can you provide details on the Champion brand's revenue makeup and cancellations? - Management indicated that Champion is facing market challenges, but there is strength in the collegiate and European channels [60] Question: What is the outlook for refinancing upcoming debt maturities? - Management plans to be opportunistic in refinancing approximately $1.4 billion of debt maturing in the second quarter of 2024 [65] Question: Will there be increased promotional activity to clear inventory? - Management expects the market to be more promotional in Q4, but they are focused on maintaining high-quality inventory levels [66] Question: How did the men's and women's Innerwear segments perform? - There has not been a significant difference in performance between men's and women's segments, with both facing similar challenges [70]